Five Red Flags that Preceded Neo & Bee's Collapse

Neo & Bee was a much touted Bitcoin startup that recently did its grand IPO. They raised 12,000 BTC, approximately $6M, a good chunk of cash that could easily bankroll the first few years of a software startup. But instead, just 25 days later, the CEO is missing, along with all the bitcoins and cash.

We had an amazingly promising new company, building a brand new future for cryp... Aaaaaand it's gone. It's all gone.

It's gone. It's all gone. Please step aside for people who actually have money in the bank.

It was an amazing case of pump & dump. It left behind a whole subreddit full of sad people, who,
like a barcrawler looking for true love through same-night hookups with strangers, are wondering where their beloved CEO went and whether he will call the next morning.
The shares of the company are now being traded for Satoshis on the Bitcoin, the company workers have not been paid for over a month, and all that's left are some super slick marketing videos and a couple of chairs
in a fancy rented space on a remote island. The story is so fantastic that if I made it up, editors would reject my novel because it'd be too unbelievable.

So, let's see how many red flags there were about this company.

It was based in Nicosia, Cyprus. I've been to Cyprus and it's a gorgeous island, teeming with very interesting architecture left behind by my second favorite people in history (namely, the Knights Templar, who were second only to the Barbary Pirates in coolness), but the location alone should have raised some huge red flags.

First, it's an island. Recall that Mt. Gox was based on an island. Why must every questionable company be headquartered on an island? Do MBA programs teach that if you're a wannabe Bond villain, you must have an island base?

Second, it has weird laws. For instance, and I'm not making this up, lawyers have to wear white wigs in court. Good luck hiring someone who'll put on a wig and chase after your investment in 110F (44C) Cyprus heat.

Third, its legitimate economy, based on drunk British tourists, is dwarfed by its underground economy. And that economy in turn is based on money being laundered by Russians. The otherwise haughty European Union, which is all too eager to control just about everything, including the bendiness of bananas, looks the other way, because the money being stolen out of Russia is too sweet to not pump into the struggling European economy.

These are not the hallmarks of a trustworthy venue for investment.

Hypnotic yellow icons on a black background. I'm ready to buy in.

It put together some amazingly slick marketing videos yet had no business plan. The videos are worth watching: very high production value, super slick, and yet, at the end, you'll have no idea what this company does. How on earth was this company supposed to make money? What happens when the price of Bitcoin does not go to the moon, like planned, but follows a low-earth orbit instead? There is a big difference between holding other people's money and actually making money, a difference that was conveniently ignored in the slick marketing materials.

It made a point of hitting every single talking point at every single opportunity. Real companies have real products, which, because they are real, innovate on only a couple of fronts. Akamai delivers content faster. HyperDex stores your data and brings it back to you reliably and quickly. Neo & Bee was into everything Bitcoin all at the same time. Not a single keyword went unused, there wasn't anything they didn't do. These guys had so much chutzpah that they proclaimed: "Authorities should create regulations for a bitcoin exchange platform that utilises multi-signature wallets, cryptographic proof of liquidity and reserves, and complete transparency as a business model." Well, everything is pretty transparent now, except no one can see the money.

It had some of the most recognizable names in Bitcoin circles on its roster, with Andreas M. Antonopoulos "providing advisory services to Neo & Bee across multiple areas of the business." The Bitcoin community absolutely worships Andreas, someone whose technical achievements I had difficulty tracking down. I have always been amazed by how determinedly he beat the "to the moon!" drum for Bitcoin, in between promoting his own brand in Tony Robbins-esque fashion. Surely, every intelligent person must, on occasion, harbor some doubt and engage in some self-questioning; in fact, intelligence is correlated with doubt and questioning. Andreas is remarkable for never suggesting caution, never hinting that all might not be well with the Bitcoin ecosystem. Not surprisingly, he was pretty much the last person to accept that Mt. Gox was having trouble, a solid two weeks after Mt. Gox stopped withdrawals. Even now, he seems to be oblivious of the many technical problems that have beset Coinbase's broken back-end. So it should not have been surprising that he lent his name, his likeness and his credibility to Neo & Bee. But the one rule of being a mensch is to stick through with the power of your convictions, not to desparately try to distance oneself when the going gets tough.

It had a CEO who played so perfectly well into the Bitcoin demographic: under 30yo, with a penchant for teenage trappings like Bentleys. That he could not distinguish between "you are" and "your" is actually an asset in these circles -- someone too clever and too polished would have turned off the Bitcoin demographic, which distrusts anyone who looks or sounds like a real grownup.

So, what we have right now is a CEO who went into hiding in the UK. Here's his very last tweet:

Bitcoin is here, we are too old so we will learn from the younger generations to regulate it. #progress

Update (May 7, 2014)

My colleague Michael Sirivianos, who lives in Cyprus across the former Neo offices, chimes in that Neo & Bee media blitz was "the most intense in years, if not ever. They owe 0.5M to their advertising agency, which is also going bankrupt." These guys single-handedly set back the cause of cryptocurrencies, certainly in Cyprus and probably more broadly.

Update (May 19, 2014)

Full Neo & Bee timeline. The top comment is spot on: "Everybody loves that Bitcoin is the Wild West of finance until it turns out to be the Wild West of finance."